Systemic Risk

In the past two years, two dangerous episodes of financial instability and sudden changes in market dynamics have hit the world economy . More are likely, because the global economy is out of balance in several respects as it emerges from the crisis, particularly in terms of sovereign debt and the structure of global demand. Systemic risks drive most crises, and pose a challenge for several reasons. First, they are not easy to detect with confidence, and are even more difficult to prove.

BEIJING: Allaying apprehensions over the Chinese economy slowing down to a 24-year low, Premier Li Keqiang pledged to advance comprehensive reform and open China wider to foreign investors while ruling out possibility of systemic financial risks due to fluctuations in the real estate market. China will continue to push ahead with its reforms in key areas in 2015, with the priority being properly handling the relationship between the government and the market, Li told the...

MR Umarji Chief Adviser -Legal, IBA The main objective of the Right to Information Act, 2005, is to provide access to information in order to promote transparency and accountability in the working of every public authority. The RTI Act defines 'public authority' as anybody or authority constituted by law made by competent legislature and includes anybody owned, controlled or substantially financed directly or indirectly by funds provided by the government. ...

MUMBAI: The debt-laden Kingfisher Airlines , which owes 17 banks about Rs 7,000 crore , does not pose any systemic risk, RBI Deputy Governor K C Chakrabarty said today. When asked about the troubles at Kingfisher Airlines, Chakrabarty said that "it does not pose any systemic risk to the banking system". He was talking to reporters on the sidelines on an SME event organised by the Bombay Chamber of Commerce and Industry here. The aviation regulator DGCA...

MUMBAI: To safeguard stock markets from any systemic risks arising out of trade and payment defaults, regulator Sebi is bringing in a new regulatory regime next week to ensure timely payment settlements and to keep the systems robust by way of daily 'stress tests'. The new mechanism, which would come into force from December 1, are aimed to mitigate the risks faced by overall markets due to defaults by certain entities and would also include setting 'default waterfall'...

By Simon Johnson There are two leading views about the world's financial system. The first is that the system is safer than it has ever been. According to this view, the events that led up to the global financial crisis that erupted in 2008 cannot happen again; the reform process has succeeded. By contrast, a growing group of current and former officials continues to express concern about current and potential future risks in the United States, Europe, and globally. US...

A problem is a chance for you to do your best, noted the jazz legend, proffering a practical solution for all time. The recent financial crisis has focused policy attention on systemic risk and how to deal with it. A Bank for International Settlements paper analyses systemic risk and offers appropriate policy solutions to reduce it. The paper defines systemic risk as "a risk of disruption to financial services that is caused by an impairment...

By Simon Johnson There are two leading views about the world's financial system. The first is that the system is safer than it has ever been. According to this view, the events that led up to the global financial crisis that erupted in 2008 cannot happen again; the reform process has succeeded. By contrast, a growing group of current and former officials continues to express concern about current and potential future risks in the United States, Europe,...

The new provisioning and reserve requirements for non-banking finance companies (NBFCs), recommended by a working group constituted by the Reserve Bank of India, may change the landscape for such companies. The tighter norms could also lead to a consolidation in the industry, according to industry veterans. Usha Thorat , former RBI deputy governor, who headed the group, spoke to Divya Rajagopal from Istanbul where she is on an official tour...

By KP Krishnan Last week, RBI governor D Subbarao spoke for the first time on the Financial Sector Legislative Reforms Commission (FSLRC) report. He focused on one aspect of the draft financial code, systemic risk, and made three points: > The Financial Stability and Development Council (FSDC), chaired by the finance minister, will have statutory status and the responsibility for safeguarding systemic risk. > This runs counter to the post-crisis...

George Alexander Muthoot The release of Reserve Bank of India's (RBI) KUB Rao committee report on gold has brought a breath of fresh air. The awareness of gold loans had grown well beyond the south and gold loan players, especially the biggies, have been growing at a brisk pace. The RBI had some concerns, which it laid down with a slew of measures it deemed fit. While these were more of hygiene factors, what followed was a dialogue between the gold loan players and the regulator...

MUMBAI: The Reserve Bank of India today said the overall asset quality of banks has improved in the recent past with a reduction in bad loans, although systemic risks have increased. "Banking sector risks have increased since December 2013, as shown by the Banking Stability Indicator. "Though there was a marginal improvement in asset quality, concerns remain about the liquidity and profitability aspects. Stress tests indicate higher vulnerability for public sector banks as...

MUMBAI: Even as bad loans hit a record high, growing by over 35 per cent in the first three quarters of FY14 year-on-year, the senior most RBI Deputy Governor today said there is no systemic risks as of now, but called for improving the process of identifying stress on time. Stating that banks have to change their credit appraisal process and policies, and should also try to come out of the problem soon, Deputy Governor K C Chakrabarty said: "NPAs are not a problem now...

Varun Gandhi India's financial system is shallow, promoting inequality. This financial system requires reform, increasing access for the under-banked and small and medium enterprises. We require stable policies from independent regulators that promote low inflation, greater financial access and more liquidity. Growth is catalysed by systemic depth. Our financial regulators desire independence and institutional support. Today, work is allocated...

MUMBAI: Despite foreseeing a possible spike in gross non-performing assets to 4.4 per cent of the total advances by March 2014 from 3.42 per cent a year ago, the Reserve Bank today ruled out any systemic risk to the system, saying banks will still be having higher capital adequacy. "Our stress tests suggest that under a severe stress scenario, the gross NPA ratio of banks may rise to 4.4 per cent by March 2014 but even under such a scenario the system level capital...

NEW DELHI: A majority of stock exchanges worldwide came under cyber attacks last year and almost 90 per cent of them perceive such activities to be a potential systemic risk, according to a survey. For the bourses, cyber-crimes -- whose nature is becoming more complex -- could result in "massive financial and reputational impact," among other adverse fallouts. The findings are part of the 2012-13 Cyber-Crime Survey jointly conducted by the IOSCO Research...

This refers to the news report 'RBI caution halts SBI funding plan for 3 PEs' (ET, June 9). This need not be taken as a knee-jerk reaction from the RBI. It apparently flows from a macro-prudential view and is an appropriate regulatory response. What lay at the heart of the RBI's objection is the opacity in PEs' operations, their risk management model and proclivity to take risks. The distinctions between PEs and hedge funds are getting increasingly blurred and the RBI's views on the latter are well known.

WASHINGTON: The US government took control of mortgage giants Fannie Mae and Freddie Mac on Sunday, placing them in a government "conservatorship" to help the financial system recover from massive housing losses, officials said. Treasury Secretary Henry Paulson announced a four-part plan that allows the US regulator to seize control of the government-chartered, shareholder-owned firms underpinning trillions of dollars of home loans. The plan "is the best means of protecting...

By KP Krishnan Last week, RBI governor D Subbarao spoke for the first time on the Financial Sector Legislative Reforms Commission (FSLRC) report. He focused on one aspect of the draft financial code, systemic risk, and made three points: > The Financial Stability and Development Council (FSDC), chaired by the finance minister, will have statutory status and the responsibility for safeguarding systemic risk. > This runs counter to the post-crisis trend around...

George Alexander Muthoot The release of Reserve Bank of India's (RBI) KUB Rao committee report on gold has brought a breath of fresh air. The awareness of gold loans had grown well beyond the south and gold loan players, especially the biggies, have been growing at a brisk pace. The RBI had some concerns, which it laid down with a slew of measures it deemed fit. While these were more of hygiene factors, what followed was a dialogue between the gold loan players and the regulator...